It’s a seductive idea. Get out of the market when it’s ‘obvious’ that it will continue go down, then get back in when it’s ‘obvious’ that it will continue to go up. Except as Rocky said so prophetically to Bullwinkle, “But that trick never works”.
Here are some really surprising numbers about market timing. In the 20 years between January 1st 1996 and December 31st 2015, the market gained on average 8% a year. Now what if we just subtract out the 10 best days during that period? How much does it decrease the return? 1%? 2%? Well if you missed those 10 best days, your average return dropped from 8% to 4.5% per year. Wow. But here is the really unexpected thing. 6 of those 10 days happened within two weeks of the 10 worst days. Getting out of the market, even for a brief period of time because ‘things are bad’ can just kill your investment returns.
That does not mean just buy and never sell. If things are expensive (i.e. January of 2000) of course you do some selling. But by and large staying the course, and not trying to time the market will give you a much better outcome than Bullwinkle trying over and over to pull that rabbit out of his hat.